Make the Most of Small Business Tax Breaks

When a friend of mine needed to replace his computer last week, the sales person happened to mention that since he was buying the computer for his small business, and it cost more than $1,000, he could claim an extra tax deduction on the purchase.

This tax break forms part of the Australian government’s economic stimulus package, and although I’d read about it, I hadn’t taken much notice of it — or mentioned it to my friend.

This made me wonder if WWD readers in other countries were unaware of stimulus measures they could use. If so, note that if you’ve yet to submit your 2009 tax return, you may still be able to take advantage of the following benefits.

U.S. Tax Breaks for Small Business

Back in February, the U.S. government announced a series of tax benefits for business as part of the American Recovery and Reinvestment Act. The two that are probably most useful to most WWD readers include depreciation and deduction measures for new equipment purchases made in the 2008-2009 financial year.

Deductions. According to Karen E. Klein at BusinessWeek, Section 179 of the new law “allows small businesses to immediately expense new equipment or machinery” up to a total of $250,000 ($117,000 higher than the previous year’s limit). The IRS explains that this tax break applies to “machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009.”

Depreciation. The stimulus package also offered a one-year extension on the 50 percent bonus depreciation the government offers on new equipment purchases, which, Klein says, allows small business owners to “immediately deduct half of the cost of qualifying purchases rather than depreciating them over time.” To take advantage of this tax break, you must purchase and start to use the equipment (qualified tangible assets) in 2009.

Making the Most of the Breaks

While in July it was reported that these stimulus measures hadn’t had much effect, since they were introduced at a time when business credit lines were either tight or had dried up completely, it’ll be interesting to see the final figures once the year’s small business tax returns have all been submitted.

Speak to your accountant before you submit your tax return to make sure you’re claiming any purchases you made which are eligible for deduction or depreciation under the law.

Have you, or has a small business person you know, used these bonuses as a way to purchase new equipment for a business? Will you be benefiting from the stimulus package on this year’s tax return?